Category Archives: wealth

To Rent or Buy

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Homeownership has always been a key component of the American Dream, but as a result of the recession, many Americans are beginning to question if it’s worth it.  Since 2008, home values have declined at record levels.  In the African American community, home equity is one of the most significant contributors to an individual’s net worth.  Although many of us focus on what we make or our annual salary, the true measure of wealth is net worth.  Net worth is the difference in the value of your assets (what you own) and your liabilities (what you owe.)

While home values in most communities were impacted by the increase in the number of foreclosures, African American communities were affected at a greater level due to the number of sub-prime mortgages issued to African Americans.  The State of the Dream 2010:  Drained, published by United for a Fair Economy reported that over half of the mortgages issued to Blacks in recent years were sub-prime loans mostly to people who qualified for regular loans.

There are a host of calculators and charts that can be used to assess whether it’s better to rent or buy, but I believe the decision should be based on more than math.  If you are faced with making the decision to rent or buy, please consider the following:

  • Mortgage rates and home values are at historical lows.  This should not serve as a notice to buy more house than you can afford.  It simply means that individuals who couldn’t afford to purchase a home years ago may now be able to experience home ownership.  Additionally, we have to stop looking for the quick pay-off.  Many of us want equity in our homes right away, but I have a question for you – how much equity will you earn while renting?  A key takeaway from the recent housing crisis is to be weary of quick equity.  According to the Federal Reserve Bank of Cleveland, a reasonable estimate for home appreciation is approximately 2% annually.  As such, it is important to be realistic and patient
  • Credit worthiness is required for renting and buying.  If you are choosing to rent because you are afraid of being turned down by the bank when applying for a loan, you can also be turned down when applying to rent.  Another consideration is that more people are renting today, which means landlords have the ability to be selective when interviewing potential occupants for their property.  If you are concerned about your credit profile, take an opportunity to go to www.annualcreditreport.com and request your credit report from all three major credit bureaus.  You can also go to www.freecreditscore.com to receive your Experian credit score for free
  • Do your homework by researching different loan products.  You don’t have to become an expert on mortgages and the home buying process, but you should know the basics.  There are a number of credible sites that can provide a baseline of information for you.  Be realistic about what you can afford and ask questions.  Avoid creative loan products that may allow you to purchase more ‘house’ today, but can carry hidden costs or balloon payments that could very well mean trouble later

The choice to rent or buy may vary from person to person, but for the African American community, I believe the answer should be to ‘buy’.  There are a record number of foreclosures on the market right now and there are investors purchasing them for ‘pennies on the dollar.’  To achieve anything in life you have to be willing to take a risk.  The same holds true for investing.  Many of us only want to purchase something when others see the value in it, but true investors see the value before others.  This is how wealth is accumulated.  I know that renting may appear safe in today’s market, but if you want to accumulate wealth, you must take the risk and choose to buy instead.

Is Your Child College Bound?

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The end of the school year is quickly closing in on us.  While most students are preparing to relax and enjoy the summer, if you have a rising senior, the remainder of the school year and the summer break are critical times.  If and where your child will go to college is a big decision; one that requires more than one year of preparation.  Nevertheless, if you’re just getting started or perhaps you’ve been planning all along, the following steps may be helpful to you:

1.       Meet with your child’s guidance counselor to review course curriculum and ensure that your child is enrolled in college preparatory courses.  If your child’s grades are mediocre or your child has been enrolled in the vocational diploma program, you may want to consider enrolling your child in enrichment courses at the local community college

2.       Review your child’s top five college choices, assess admission requirements, and tuition costs.  Developing a matrix will ensure that you are consistent in your assessment of each school.  You should also plan a trip to tour each campus

3.       Review the results of your child’s college admissions tests (i.e., SAT, ACT, etc.) and confirm that the scores meet the minimum requirements for your child’s top five college choices.  If your child’s test scores are low, consider a SAT or ACT prep course

4.       Create a budget.  The budget should breakdown how much you plan to contribute, what portion will be covered by scholarships and other financial aid sources, and the amount your child will be responsible for paying.  I know that every parent wants to do as much as they can to help their child, but please remember that this is your child’s education.  That being said, they should have some ‘skin in the game’ too.

5.       Evaluate your child’s volunteer and extracurricular activities.  If their volunteer hours are low or non-existent, volunteering should be at the top of your child’s priority list for this summer.  Although it may not be listed as an admissions requirement, colleges may review this information when awarding scholarships and grants

6.       Review your child’s social media sites.  According to an article on offtocollege.com, a survey conducted in 2011 revealed that approximately 80% of college admission officers will check the social media profiles of potential students.  As a result, students should clean-up their profiles and photos before submitting their college applications.  The article mentions that students should leverage their social network platform to highlight volunteer activities and other key interests

College is a time of preparation and transition.  While most 18 year olds believe they no longer need their parents’ assistance in making decisions, we all know this is far from true.  The intent of this Post is to provide guidance on how to assist your child in the college selection process.  It is important that as parents, we don’t step in and take over the process.  If you have to hold your child’s hand and make all of the decisions on their behalf, you should be concerned.  In essence, your child should want their education more than you do.  Overall, this should be an exciting time for you and your family.  Your child is about to embark on a journey that will likely become one of the most memorable times in their life.  Your love and wisdom can act as a compass for them as they navigate through unchartered waters.

If you don’t have a rising senior but you would like to know how you can begin preparations for your child, please visit www.collegispossible.org.

Student Loans – The Next Credit Bomb

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While the economy continues to show signs of improvement, the bleak outlook on student loan debt stole headlines last week.  Due to the recession, there were many people (young and old) who seized the opportunity to go back to school in hopes of retooling themselves for the emerging job market.  On the surface, this seems to be great news, but there were some alarming facts reported in the news:

  • An article in Forbes announced that four economists at the New York Fed reported that outstanding student loans now exceed credit card balances and auto loans
  • According to the Federal Reserve Bank of NY, Department of Education, and private sources, outstanding student loans will exceed $1 trillion this year as reported by USA Today
  • The College Board reports that students are borrowing twice as much as they did a decade ago, and total outstanding debt has doubled in the past five years

Given the information above, you might say that borrowing money to go to school is a bad idea.  Although the economy is improving, there are still a significant number of people out of work.  Additionally, as parents attempt to help their children by cosigning, taking out personal loans, or drawing down equity (if available) in their homes, many may be faced with paying those loans back on behalf of their kids in the event that they’re unable to secure employment after graduation. 

After considering all of this, what’s the alternative?  Ultimately, if you want to compete, school may be the only option.  You will likely be faced with applying for loans to pay for your education, but I urge you to make wise choices.  The following three steps may help you avoid getting in over your head:

  1. Assess the salary potential for your new career and pursue jobs in growing industries (e.g., healthcare, technology, and service.)  Try to pursue opportunites that require your presence and cannot be outsourced to other countries.  Additionally, only borrow what’s practical for your new career choice
  2. Seek opportunities to apply for grants and other job training programs.  Explore opportunities to participate in programs at local non-profit agencies (i.e., Urban League, Goodwill, etc.) which offer services at a free or reduced rate.  Review the Workforce Investment Act (WIA) and confirm whether or not you’re eligible for funding under this program.  WIA supersedes the Job Training Partnership Act and offers a comprehensive range of workforce development activities through statewide and local organizations
  3. Avoid dipping into your home’s equity.  Although the economy is showing signs of recovery, we should still be conservative about the financial decisions we make.  If you take out the equity in your home or use your home as collateral, you very well may be jeopardizing your home if you default on the loan

As a result of the recession, we are slowly rebuilding America, and many families have found themselves in similar situations.  We are all defining new norms and learning how to do more with less.  Our ancestors experienced similar times and they survived.  We will also survive, but it will require us to continue to make sacrifices and become more intentional in our spending.  

In closing, because most student loans are deferred as long as you’re a student, it can become very easy to forget how much debt you’re accumulating.  Each time you apply for new debt, take an opportunity to review your outstanding debt, and if you don’t remember anything else about this post, please GRADUATE – you don’t want the debt without the degree!  An article in the Wall Street Journal reported that a college graduate earns $800K to $1M more than a high school graduate over their lifetime.  Another important fact to remember is most student loan debt cannot be discharged in bankruptcy.  In essence, nothing but death can keep you from being required to pay back student loans!

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